“Although US soy imports are likely to plunged to near zero in the coming months, active imports from South American countries (mainly Brazil) should maintain China soybean imports at near record high levels.”
Typically, in late July, dry bulk shipping reports are painted with bright colours, with most of the weekly spot market commentators trying to guestimate at what levels Baltic indices are going to peak in the end. However, in this bizarre trading year, any such conversation seems to have disappeared into a bottomless pit. On Thursday, the gauge of activity in the dry bulk spectrum, Baltic Dry Index, revisited the three-digit territory, concluding the twenty-nineth week down at 950 points. The capricious Capesizes couldn’t resist the gravitational forces of late, balancing today at $11,958 daily. In a similar vein, the workhorses of the grain trades reported losses, ending today at BPI82 TC levels of $8,320 daily. Supramaxes can be proud this week, being the only segment in the green at $8,333 daily. Having lost another $167 on a weekly basis, the small and flexible Handies lay at $7,202 daily on this Friday’s closing.
On the commodity front, grains made headlines once again, with Russian and Ukraine not managing to keep the grain corridor alive. As widely expected, Russia stressed on Monday that it will not extend the United Nations-led corridor for the export of Ukrainian grain. “The Black Sea agreements ceased to be valid today,” Russian government spokesman Dmitry Peskov said in his daily press briefing. He further added that “The part of the deal concerning Russia has not been fulfilled [and] as soon as the Russian part is completed [fulfilled], the Russian side…will return to this deal immediately.” UN sources confirmed that Moscow formally delivered a notification to that effect at the Black Sea Grain Initiative coordination centre in Istanbul. On Tuesday, Russia struck Ukrainian ports. Russia described a wave of missile and drone attacks on Ukraine's ports as "mass revenge strikes" in retaliation for attacks by Ukrainian drones that knocked out its road bridge to the Crimean Peninsula. Ukraine’s Agriculture Minister Mykola Solsky said on Wednesday that a "considerable" amount of grain export infrastructure at Chornomorsk port had been damaged in a Russian attack. In response to threats from Moscow, Kyiv warned that all ships calling at Russian-controlled ports in the Black Sea “may be considered by Ukraine as carrying military cargo with all the relevant risks”. Earlier, Russia had also threatened ships calling at Ukrainian ports, withdrawing their previous security guarantees.
Whilst the state of affairs in the largest granary of Europe took yet another negative turn, deepening summer drought in Europe and Canada have heightened concerns for wheat in those regions too. Existing drought is likely to worsen over the next month in Canada and Europe. Furthermore, as the key development period for Australia wheat begins in August, dry weather could dominate the continent, with the worst impacts in Western Australia based on long-term dryness. The only major wheat region with a favorable outlook during the weeks ahead is in fact the Black Sea Region. However, the latest escalation in the Russia-Ukraine war cannot serve as the best guarantee that this region’s crop will reach the international markets. Against this backdrop, China called for Chinese farmers to grow more grain and to receive a guaranteed income. However, to what extent that could happen in such a short notice remains under question and thus China’s dependency on South American crops grows even stronger.
Brazil’s dominance in the soybean export market remains intact as US exports continue to stay sluggish. In particular, Brazilian soybean exports reached an all-time high level in June. According to Refinitiv trade flow data, the leading soybean exporter shipped a recordbreaking 13.1 million tonnes of beans in June, surpassing the five year average by some 35.8 percent. The surge in Brazilian soybean exports can be largely attributed to China's insatiable appetite for beans during the period. In fact, Brazil shipped 8.6 million tonnes of soybeans to China, up significantly from the past two years. As of July 9, total 2022/23 Brazilian soybean exports have reached 64.3 million tonnes, 19.1 percent above the long-term average and the highest on record.
Conversely, US soybean market has been inactive. In June, soybean exports from the United States further declined to a mere 0.8 million tonnes, down from 0.9 million tonnes in May, the lowest figure since 2016. As of June 29, outstanding sales of US soybeans totaled 3.2 million tonnes, a significant drop from the previous year’s 7.7 million tonnes. Refinitiv forecasts the 2023/24 US soybean exports at 49.5 million tonnes on lower supply and international demand, compared to USDA's July projection of 50.35 million tonnes.
Although US soy imports are likely to plunged to near zero in the coming months, active imports from South American countries (mainly Brazil) should maintain China soybean imports at near record high levels. Refinitiv trade flows show that 9.26 and 7.84 million tonnes of soybeans are scheduled to arrive in China in July and August, well above the last year’s same period. However, concerns have been expressed from various sources that China soybean imports may slow down after quite a few months with record volumes as the autumn starts. If so, dry bulk shipping needs to find another pillar of support to maintain even the current levels.
Data source: Doric